Cheques and

cheque clearing:
An historical perspective
Contents

1. The advent of the cheque

2. From handwritten to printed cheques
3. Standardisation
4. Taxes and Stamp Duty
5. The clearings – early days
6. Emergence of technology
7. The law relating to cheques
8. Cheque clearing since 1985

9. The Cheque and Credit Clearing Company

10. The cheques market
11. The central infrastructure
12. Members’ cheque processing

13. Cheque printer accreditation scheme

14. Bank giro credits and the credit clearing process

15. Euro cheques and the euro cheque clearing

16. The Cheque and Credit Clearing Company website

17. The cheque timeline

18. Sources

Cheques and cheque clearing: An historical perspective

The advent
of the cheque
The cheque has its origins in the ancient banking system, in which customers would issue
orders to their bankers to pay money to identified payees. Over the past 350 years the
cheque has evolved from a basic ‘bill of exchange’ to the form we know today.

Cheques are not legal tender, rather legal documents whose use is governed by the Bills of
Exchange Act 1882 and the Cheques Acts of 1957 and 1992.

Bills of exchange

The history of the cheque dates back to the 13th century in Venice when the bill of
exchange was developed as a legal device to allow international trade without the need
to carry around large amounts of gold and silver. Their use was subsequently adopted in
France, and from there the practice was brought to England.

The first known reference to these bills in English law is in a 14th century statute, which
states that they could be used to carry funds out of the country. Back then bills were for
international business use and were not used for trades within England or by individuals.
The bills were usually payable abroad at a future date and in a currency other than that of
the drawer’s home country.

The advent of the cheque

1
From
handwritten to
printed cheques
The first cheques

By the 17th century, bills of exchange were being used for domestic payments as well as
international trades. Cheques, a type of bill of exchange, then began to evolve. They were
initially known as ‘drawn notes’ as they enabled a customer to draw on the funds they held
on account with their banker and required immediate payment. One of the earliest
handwritten cheques known still to be in existence was drawn on Messrs Morris and
Clayton, scriveners and bankers based in the City of London, and dated 16 February 1659.
It was for £400 (about £42,000 today) made payable to a Mr Delboe and signed by
Nicholas Vanacker (below).

One of the earliest handwritten cheques known to be in existence in the UK

The cheque is in The Royal Bank of Scotland Group’s archive. Although the date written on the cheque
reads 16 February 1659, its date is actually 16 February 1660 by today's calendar. This is because of the
switch from the Julian to the Gregorian calendar and the fact that until 1751 the legal year in England
began on 25 March rather than 1 January.

Reproduced by kind permission of The Royal Bank of Scotland Group © 2009

From handwritten to printed cheques

2
At the very first meeting of the Court of the Bank of England on 27 June 1694, it was
decided that customers who deposited money would have the choice of three types of
account. One of these allowed customers to draw notes on the Bank up to the extent of
their deposits.

These ‘drawn notes’ had themselves evolved from the ‘transfer in bank’, an authority to a
banker to pay money to a named person, and took some time to become popular, being
overshadowed by the use of bills, bearer notes, and later, Bank of England notes.

First printed cheques

The earliest drawn notes, such as the Vanacker cheque, were all written in letter form such
as “Mr Speed [the Chief Cashier], please pay….” but the Bank of England pioneered the
use of printed forms, the first of which were produced in 1717 at Grocers’ Hall, London. The
customer had to attend the Bank of England in person and obtain a numbered form from
the cashier. Once completed, the form had to be authorised by the cashier before being
taken to a teller for payment. These forms were printed on ‘cheque’ paper to prevent fraud.
Only customers with a credit balance could get the special paper and the printed forms
served as a check that the drawer was a bona fide customer of the Bank of England. The
printed slips had scrollwork at the left-hand edge which could be cut through, leaving part
on the cheque and part on the counterfoil – the real “check” – which is how the cheque
got its name.

Examples of these early forms of security printing are shown below. The Boldero, Carter,
Barnston & Snaith items show both black and white and one of the earliest uses of colour.

Top: Boldero, Carter, Barnston & Snaith items, showing

both black and white and one of the earliest uses
of colour. © Trustees of the British Museum

Left: An example of a printed item showing the scroll

pattern.

The Oxford English Dictionary says the earliest use of the term cheque (as opposed to
‘drawn note’) dates to an Act of 1706 which provides for Exchequer Bills to have two
counterfoils instead of one and that “the Governor & Company [of the Bank of England]
shall have the use and custody of the one part of all and every the cheques, indents or
counterfoyles of all such Exchequer Bills, from which the same Exchequer Bills shall be cut ”.

From handwritten to printed cheques

2
Standardisation
The earliest known surviving cheque printed with the name of the issuing bank (below) is
dated 1759 and drawn on Messrs Vere Glyn & Hallifax. It is held by the Bank of England.

The earliest known surviving cheque printed with the name of the issuing bank
Bank of England Collection

The Commercial Bank of Scotland is thought to have been the first bank to personalise its
customers’ cheques, with the earliest example reported from 1811, although the practice
may have been introduced from the bank’s inception in 1810. The bank printed the name
of the account holder vertically along the left-hand edge (The example below shows a
personalised cheque for a ‘John Thom’). Both of these companies eventually became part
of The Royal Bank of Scotland Group.

By 1830, sufficient cheque

payments were being made by
the Bank of England’s customers
to justify issuing books of 50, 100
or 200 forms and counterparts,
which were either bound or stitched.

An early personalised cheque

© Trustees of the National Museums of Scotland

Standardisation

3
Taxes and
stamp duty
In 1782 the first Act to impose a tax on all cheques made out to “order” was passed.
Cheques payable to “bearer” were exempt as they were deemed to be payable on
demand, rather than at a future date (implied by “or order”) and fell within existing
legislation relating to Bills of Exchange. Items drawn on certain accounts such as
Government departments, the Army and the Navy were also exempt. The first tax was
an “ad valorem” (depending on value) stamp duty, which hampered the widespread
use of cheques and led to them only being used by the wealthy.

Until 1853, cheques were illegal if dated or negotiated more than 10 miles from the
bank on which they were drawn, but in that year an Act was passed legalising such
cheques if they bore an impressed or adhesive penny postage stamp. The reduction in
duty to one penny made it far more attractive for small businesses to use cheques. By
1856 the 1d (one penny) duty was often ‘forgotten’ and it was common for cheques to
be made payable to bearer specifically to avoid the duty.

In 1858 all restrictions regarding distance were removed and a fixed duty of 1d per
cheque was imposed on all cheques drawn by private individuals. After 1881 adhesive
stamps inscribed “postage & revenue” could be used to show the duty had been paid.

1. 2. 5.

3. 4.

Some of the original stamps used in the UK

1. 1868 - An impressed stamp
2. 1900 - An adhesive stamp
3. 1910 - An embossed stamp
4. 1949 - An embossed stamp
5. 1960 - A printed stamp

Taxes and stamp duty

4
In 1918 stamp duty on cheques was doubled to 2d and by 1929 the Government was
earning about £3.5 million a year from this tax. The payment of stamp duty was
indicated by means of an impressed stamp, until an amendment to the Act in 1956
which allowed banks to issue chequebooks with the stamp duty mark already in place.
The duty was abolished on 1 February 1971, shortly before decimalisation on 15
February 1971.

Decimalisation posters
Images reproduced courtesy of The Royal Mint

1909 ‘Burton-on-Trent’ cheque with the ‘one penny’ stamp duty mark
Courtesy of Lloyds Banking Group Archives

Taxes and stamp duty

4
The clearings
- early days
The cheque clearing is an operational arrangement or system which enables cheques to
be exchanged in bulk and settled between banks or branches in order to transfer funds
from one customer’s account to another. Settlement is effected on the net difference
between cheques exchanged (i.e. sent to and received from the other banks) rather than
on the gross value of the cheques, transaction by transaction. The ‘clearing cycle’ results in
a credit to the account of the beneficiary at the bank of deposit, and an equivalent debit
to the account of the payer at the bank on which the cheque was drawn.

Today, cheques in the UK are cleared according to a 2-4-6 timescale and the process is
largely automated. However, it has not always been this way.

Up until around 1770 an informal exchange of cheques took place. Clerks of each bank
visited all of the other banks to exchange cheques, whilst keeping a tally of balances
between them until they settled with each other. After this date the practice of clearing was
officially recognised by the private bankers in the City and gradually evolved into the
process we recognise today.

The City

Daily cheque clearings began around 1770 when the bank clerks met at the Five Bells, a
tavern in Lombard Street in the City of London, to exchange all their cheques in one place
and settle the balances in cash. We do not know how many cheques were in circulation at
that time but as demonstrated by today’s currency clearing - managed by the Cheque
and Credit Clearing Company - banks consider it worthwhile to operate a clearing even if
there are only a few hundred items a day.

By 1773 a separate room in the Five Bells had been set aside for exchanging cheques.
However, this room soon became too small and the clearing process moved to a larger
room in a private house next door. In 1805 clearing took place next door to the offices of
Messrs Smith, Payne & Smith in Lombard Street but it was not until 1821 that a permanent
committee was formed to regulate the clearings. The group of private bankers involved
later became known as the Committee of London Clearing Bankers. The first Bankers’
Clearing House was built in Lombard Street in 1833, with money subscribed by the 39
founding bankers, which included Barclays, Glyn, Martin and Williams. Apart from when the

The clearings - early days

5
clearing was transferred to Stoke-on-Trent during World War II, cheques were exchanged
in Lombard Street for over 220 years.

During the same year, legislation was introduced which permitted joint-stock banks - those
owned by a corporate body rather than one or more individuals - to be established in
London, provided they did not issue notes.

Some joint-stock banks were admitted as members of the Bankers’ Clearing House in 1854.
In the same year settlement in cash was replaced by settlement across accounts held at
the Bank of England, using cheques drawn on the Bank – an arrangement that continues
today, albeit by electronic means. The Bank of England itself was admitted as a member in
1864.

It was the joint-stock banks,

along with the development of
the branch banking system, that
were responsible for popularising
and encouraging the banking
habit amongst the population
generally. During the first 30
years or so of its existence, there
was a fivefold increase in the
turnover of the clearing house.
In the mid-1850s the owners of
the clearing house bought the
premises next door at 3 Abchurch
Lane. The basement of the
building was let to a wine
merchant whose cellars extended
underneath the clearing house
to Post Office Court (right), and
A view of the Bankers’ Clearing House at Post Office
the upper floors were let out as Court, Lombard Street, London
offices. By the late nineteenth
century cheques had became
more widely used, so more space was needed and in 1892 the clearing house took over all
of the upper floors as well (although the wine merchant retained use of the cellars until
1915).

By 1895, the original founding

bankers of the Bankers’ Clearing
House had reduced from 39 to 4,
either through bankruptcy or sale.
A new ownership arrangement was
needed so, that year, a private
company, limited by shares, was
formed under the name of the
Bankers’ Clearing House Limited. An example of a country cheque dated 1868, showing
Shares in the company were issued its London agents
to the clearing bankers on
favourable terms so that all members of the Bankers’ Clearing House would have equal
shares in the company and premises. It was also agreed that such equality was to be
maintained in the future and this agreement persists today – the Cheque and Credit
Clearing Company is owned in equal shares by its members.

The clearings - early days

5
In 1902 the clearing house acquired additional space at 84 and 85 King William Street,
which enabled a Burroughs adding machine to be installed and amendments to be made
to the clearing system.

The clearing rules allowed

the same day settlement of
cheques exchanged within
the City of London, which
was originally defined as
within walking distance of
the clearing house. These
cheques were called “walks”
items.

The town clearing process

evolved directly from this
The area defined as being ‘within walking distance of the system and continued,
clearing house’ - 1963. with a few variations to its
boundaries, until it ceased
operation in 1995. High value, same-day payments were then made via CHAPS, as they
are now.

Provincial clearings

Meanwhile, outside the City of London,

The last ever town clearing cheque
A cheque drawn on a country banker
Courtesy of Lloyds Banking Group Archives
many towns and cities in England and Wales
operated their own clearing arrangements,
which eventually became recognised
provincial clearings. However, it wasn’t until
1858 that there was a formal mechanism for
clearing transactions outside London. From
1858 the country cheque clearing, which
operated outside a radius of 65 miles around
London, allowed for provincial banks to
effect settlement for items on the second
business day after exchange. The country
cheque clearing was open to all provincial
banks in England and Wales, which only
needed to appoint a London clearing bank
as their agent and print the agent’s details
on the bottom of their cheques.

All cheques drawn on other country banks could then be despatched in one parcel to
their London agents, and the provincial banks received in turn the majority of items
payable by themselves. Branches that were not covered by the “walks” or the mail
collections, received parcels that were sent by the regular post, with payment made by
return of post by an order on the bank’s head office. Over the years there was sufficient
growth in transactions falling between the country clearing area and the City of London
“walks” area (and enough confusion between the boundary lines which applied) to
warrant the establishment of the metropolitan clearing in February 1907.

The clearings - early days

5
Scottish clearings

Just as in England and Wales, cheque clearing in Scotland started with bank clerks being
dispatched to other banks to exchange cheques, eventually leading to having one central
place of exchange. The first Scottish cheque clearing house was founded in Glasgow in
1856. The Edinburgh Clearing House opened in 1865. Following the clearing houses
established in Glasgow and Edinburgh other towns followed suit and, by the 1880s, there
were local clearing houses in Aberdeen, Dundee, Dumfries, Greenock, Paisley and Perth.

World War Two

By 1936, when the District Bank joined the clearings, there were 11 banks participating as
well as the Bank of England. The others were: Barclays Bank, Coutts & Co, Glyn, Mills & Co,
Lloyds Bank, Martin’s Bank, Midland Bank, National Bank, National Provincial Bank,
Westminster Bank and William Deacon’s Bank.

Reliability and continuity have been two of the guiding principles of protecting the integrity
of the clearings and this was never more important than with the threat of war. Clearing
operations were moved to Stoke-on-Trent under the War Emergency Clearing Scheme.
Planning for the move began in 1938, in anticipation of war breaking out.

Trentham Gardens, three miles south of Stoke-on-Trent, was identified by the Committee of
London Clearing Bankers during these planning stages. The public pleasure gardens at
Trentham had been developed
on the estate of the Dukes of
Sutherland and a dance hall
was built there just after the First
World War. An agreement was
signed in February 1939 to ensure
that the clearing would be able to
relocate to Trentham Gardens
immediately if war broke out.

General clearing came about as a

direct result of the move. Before the
war, there were three separate
clearings sorted through the
Trentham Gardens, Stoke-on-Trent
Bankers’ Clearing House: the
country, metropolitan and town
clearings.

Rather than leave any part of the clearing exposed to the risks of war it was decided that,
with the exception of a small part of the former town clearing, all items would pass through
the new Central Clearing House. Before the war, inter-branch items did not pass through
the Bankers’ Clearing House but during this time most banks took up the option of
relocating their own branch clearing to Trentham as well.

The collection of any London sundries (items drawn on non-clearing banks, money orders
etc) was dealt with by dividing the London area into 12 ‘walks’. Each one was assigned to
one of the 11 clearing banks and the Bank of England, who then undertook the collection
of these articles from its designated area and responsibility for their delivery to the Central
Clearing House.

The clearings - early days

5
Before the move to Trentham, the daily settlement consisted of: the balances of the
country clearing, exchanged two days previously; the metropolitan clearing, exchanged
the previous day; and the town clearing of the same day. Once the Central Clearing House
was in operation, the daily settlement consisted of all items passing through the house the
previous day.

Another change was concerned with letters lost in the post. Previously, the presenting
banker would have to obtain duplicate cheques if a letter was lost between the clearing
department and the branch, and would be charged accordingly by the paying banker. At
Trentham, however, each item was photographed prior to despatch using Recordak
microfilm apparatus (made by Eastman Kodak). This allowed duplicate prints of any
missing items to be made and the drawer’s consent obtained to apply the debit. Today,
banks use sophisticated imaging equipment to create computer images of cheques for
use throughout the clearing process.

Space in the new site was divided up according to the number of clearing articles handled
by each bank. The big five (Barclays Bank, Lloyds Bank, Midland Bank, National Provincial
Bank and Westminster Bank) found themselves on the dance floor, one of the smaller
members took the stage, another was based in an outbuilding and the Bank of England
was above the kitchen.

The clearing operation at Trentham

The clearing function officially started at Trentham on Monday 28 August 1939 just days
before the Second World War began and, as the staff and operations had moved over the
weekend, there was continuity of clearing services as normal. Once the war was over, the
clearings moved back to the City premises in 1946.

The clearings - early days

5
Emergence
of technology
As volumes increased in the 1950s and 60s, automation of the sorting process became
more of a necessity. In the very early days of computer processing, teams of punch card
operators typed cheque details onto punch cards. Machines that processed the punched
cards updated customers’ accounts, thus automating what bank clerks had previously
recorded in ledgers. Sorting, however, was still done by hand.

By 1960, a newspaper review in The Times of the “Potentialities of Automatic Reading

Devices” stated that investment in reading machines was worthwhile if data could be
analysed from more than 100 remote points or “if the encoding or sorting of documents
would call for a staff of 10 or more girls”. By this point inter-bank clearing volumes had
already reached 2.5 million items per day and a reading machine, running at 10 per cent
of its full capacity for an eight-hour day, would be cheaper than a staff of punch card
operators.

In 1959 the American banks, in collaboration with US business machinery manufacturers

and printers, produced and patented the E13B standard MICR (Magnetic Ink Character
Recognition) code. This is a
standard font, which is used in
conjunction with magnetic ink – ink
with a high iron content which
becomes magnetised when passing
through high-speed sorters. Each
character has its own unique
magnetic signature which is read
by the MICR read head, a device
similar to the playback head in an Example of MICR (Magnetic Ink Character
audio tape recorder. Recognition) code

The first American reader/sorters produced by Burroughs, NCR and IBM had a throughput
rate of approximately 1,500 documents per minute (DPM), whilst their European
equivalents made by EMI (named FRED, the Figure Reading Electronic Device) and De La
Rue Bull offered speeds of between 300 and 750 DPM.

Emergence of technology

6
 These early reader/sorters set the pace and this throughput rate has not been improved
upon very much, probably because there is a finite limit to the speed at which paper can
be passed though a reader. Current machines still process at approximately 1,000 to 1,800
items per minute.

The London clearing

banks carried out their
own studies and
attended various
demonstrations of the
different automatic
cheque sorting
machines available,
both in the UK and
abroad, to decide on
the most suitable system
for Britain. In 1960 the
world’s first fully
operational electronic
cheque and document
sorter, using the
An example of an early reader/sorter American MICR system,
was demonstrated to
the Committee of London Clearing Bankers at the London head office of NCR. Mainly as a
result of the greater speeds achieved by the American system, the Committee settled on
that system as being the most appropriate. At the same time, the banks also agreed to
reserve the area at the bottom of the cheque specifically for encoding the branch and
account details. The use of MICR encoding on a cheque in conjunction with high-speed
reader/sorters revolutionised cheque processing.

Lloyds and Barclays Banks both installed automatic cheque sorting machines in 1960/61
and began testing their systems around that time. It was Westminster Bank (which later
merged with National Provincial Bank to form National Westminster Bank), however, that
stole the march. On 5 September 1962, Europe’s first MICR cheque reader/sorter system –
capable of reading and recording cheque codelines - was opened at its Lothbury head
office by Reginald Maudling, the then Chancellor of the Exchequer.

Electric vans

With the arrival of reader/sorters, bundling up cheques into mailbags for delivery to the
Bankers’ Clearing House was no longer viable as automation dictated that cheques be fed
in a strict regular order. Cheques had to be sent in boxes, which then had to be moved on
trolleys and the trolleys could only be moved
in vans. However, because of access
restrictions into Lombard Street, special vehicles
were needed. Electric vans, rather like
milk-floats, were commissioned because they
were quiet (there was concern that vans going
in and out of the clearing house would be too
noisy and at one stage, the street was even
paved with rubber blocks to keep noise to a
minimum). An electric van
Courtesy of the Museum of London

Emergence of technology

6
Standard format

With automation, cheques also needed to be made of much stronger paper and, in
anticipation of this move, the Banking Information Service reported in February 1962 that
cheques would, in future, be printed on thicker, stiffer paper. This meant that items could
be processed more effectively using these automatic sorters.

All cheques must nowadays: conform to C&CCC Standard 3 - the industry standard
detailing layout and font; be printed on a specific weight of paper (CBS1); and contain
explicitly defined security features.

Since 1995, all cheque printers must be members of the Cheque Printer Accreditation
Scheme (CPAS). The Scheme is managed by the Cheque and Credit Clearing Company
and requires that all cheques for use in the British clearing process are produced by
accredited printers who have adopted stringent security standards.

The Lloyds Bank hand-drawn cheque

Over the centuries, cheques have come in all shapes and sizes and even in the modern
era it has proved impossible to drive out all forms of non-standard paper. Printed cheques
have been in use since the early 18th century so this image of a hand drawn cheque is an
interesting one. In 1926, AL Mabey, a member of staff at Lloyds Bank in Temple Bar, London
had a bet that a hand-drawn cheque was as valid as the printed form of a cheque. Mr
Mabey painstakingly hand-drew a cheque for the sum of £2 and deposited it. To his delight
it did in fact pass through clearing in the normal way.

Mr Mabey’s hand-drawn cheque

Courtesy of Lloyds Banking Group Archives

Upon hearing that a hand-drawn cheque had passed through clearing without a problem,
the Chief Accountant at the Lloyds Bank Head Office requested the Temple Bar manager
ask his customers to use the standard printed cheque rather than draw their own - he had
not realised that it came from a member of staff. It did show, however, that in those days it
was not essential to use the standard printed cheque; and Mr Mabey won his bet!

Emergence of technology

6
Cheque guarantee cards

To encourage retailers to accept cheques as payment

for goods and services, the first cheque guarantee card
was issued by National Provincial Bank in October 1965.
Initially these cards enabled encashment of cheques in
branches up to a total value of £20 per day. From 1966
cards were issued that guaranteed encashments by
cheque, and payments by cheque for goods and
services, up to a value of £30.

An early prototype cheque

guarantee card
The UK Domestic Cheque Guarantee Card Scheme was
established in 1969 to create common, easily-
Reproduced by kind permission of The Royal Bank of
Scotland Group © 2009
identifiable design features to simplify acceptance
procedures for retailers and other acceptors of cheques.
The Scheme’s initial guarantee limit was £30, increasing to £50 in 1977 and two additional
limits of £100 and £250 were introduced in 1989. Since 1 October 1990, the common
identifier on all cards with cheque guarantee functionality has been William Shakespeare,
and his image is used within the cheque guarantee hologram or logo on all cheque
guarantee cards.

The many faces of William Shakespeare

1990 was also the year that cheque payments peaked, with 4 billion being written.
However, cheque usage has been declining since then and most major retailers no longer
accept cheque payments at all, so the use of guaranteed cheques is in steep decline. In
September 2009 the members of the Cheque Guarantee Card Scheme announced that
the Scheme will close on 30th June 2011, meaning that it will no longer be possible to
guarantee a cheque under the Scheme after this date. This decision followed on from the
announcement to close the Scheme made by the Payments Council earlier in 2009. The
Payments Council had concluded that it was in all parties’ interests to manage the
Scheme’s demise in a co-ordinated fashion following extensive consultation with
guaranteed cheque users and acceptors.

Keeping things going

By 1970, mergers and acquisitions (mainly in 1969 and 1970) had reduced the number of
clearing banks in England and Wales to six: Barclays Bank, Coutts & Co, Lloyds Bank,
Midland Bank, National Westminster Bank and Williams & Glyn’s Bank.

The mining crisis of 1973 led to the three-day week and restrictions on power consumption.
Crisis planning was as important then as it is now. The Committee of London Clearing
Bankers held an emergency meeting in December of that year to seek clarification from the

Emergence of technology

6
 Government over the position of the banks during the crisis. The upshot of the meeting was
that while banks were exempt from the restrictions on the use of office machinery for
cheque sorting, the use of heating and lighting was not covered and, as a result, the banks
withdrew evening opening facilities for the duration of the crisis.

Representatives of the clearing banks continue to meet on a regular basis to discuss how
to manage the clearings in the event of a crisis, whether as a result of a natural or a
man-made disaster. Major exercises are carried out on a regular basis to play out possible
scenarios and ensure that normal service will continue.

Cheque and Credit Clearing Company established

The
Child The publication of the Child Report in 1984 brought about
Report the establishment of the Cheque and Credit Clearing
Company (C&CCC) in the following year. The ten member
banks of the Bankers’ Clearing House (Bank of England,
Barclays Bank, Central Trustee Savings Bank, the Co-operative
Bank, Coutts & Co, Lloyds Bank, Midland Bank, National
Girobank, National Westminster Bank, and Williams &
Glyn’s Bank) had participated in a major review of the
“Organisation, Membership and Control of the Payment Clearing Systems”. The resulting
report (known by the name of the author, DM Child) led to the formation of the Association
for Payment Clearing Services (APACS), a new umbrella organisation which would oversee
the development of the clearings and the payment industry as a whole.

The C&CCC was established in 1985,

under the APACS umbrella, as the new
membership-based industry body to
manage the general clearing - which
was renamed the “cheque clearing” -
and the credit clearing, which
processes bank giro credits. The
company took over the business of the
Bankers’ Clearing House with a remit
covering England and Wales. All
members of the clearings were to be
shareholders in the new company and
would also be required to become
members of APACS.

Emergence of technology

6
The law
relating
to cheques
The definition and use of cheques are covered by The Bills of Exchange Act 1882, and the
Cheques Acts of 1957 and 1992. The Bills of Exchange Act 1882 defines a cheque as a
written order from an account holder instructing their bank to pay a specified sum of
money to one or more named beneficiaries.

Ever since their inception it has been the case that cheques are not a promise to pay by
the bank, but a request to the bank that it pays, out of the funds deposited by the
customer, an amount to a third party. This means that the bank will only honour the
cheque if the account holder has sufficient funds to meet it or it can be covered by an
agreed overdraft or other line of credit. Cheques are not legal tender and never have
been. Even today, if you owe someone money they are not obliged to accept a cheque.
Instead a creditor is entitled to be paid in legal tender and can refuse payment in any
other form.

Crossed cheques

The rules concerning crossed cheques Example of a

are set out in Section 1 of the Cheques crossed cheque
Act of 1992 and prevent cheques being
cashed by or paid into the accounts of
third parties. On a crossed cheque the
words “account payee only” (or similar)
are printed between two parallel vertical
lines in the centre of the cheque. This
makes the cheque non-transferable and
is to avoid cheques being endorsed and
paid into an account other than that of
the named payee. Crossing cheques
basically ensures that the money is paid
into an account of the intended
beneficiary of the cheque.

The law relating to cheques

7
Cheque clearing
since 1985
When the C&CCC was established in 1985, cheque payments were still increasing and
banks still wanted to join the clearings. Although the merger with the Scottish clearing was
still over a decade away, two Scottish banks joined the C&CCC at this time. The Royal
Bank of Scotland took over Williams & Glyn’s membership of the clearings when the two
banks merged fully in 1985, and the Bank of Scotland joined in 1986 as it had some
branches in England. Abbey National Building Society became a member of the clearings
in 1988 - a year before it demutualised, became a public limited company and floated on
the London stock exchange – and the Nationwide Building Society joined in 1991.

Cheque volumes peaked in 1990 when 4 billion cheque payments were made. Of these,
2.5 billion were cleared through the inter-bank clearing managed by the C&CCC, the
remaining 1.5 billion being in-house cheques which were either paid into the branch on
which they were drawn or processed intra-bank without going through the clearings. As
volumes started to fall, the challenges faced by the clearing banks were then of a different
nature: how to benefit from technology improvements in a declining business environment.

Annual volume of inter-bank cheque clearing 1940-2008 (thousands)

3,000,000

2,500,000

2,000,000

1,500,000

1,000,000

500,000

-
40

44

48

52

56

60

64

68

72

76

80

84

88

92

96

00

04

08
19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

20

20

20

Cheque clearing since 1985

8
Outsourcing

The bulk of the processing of cheques and credits is undertaken either prior to the
exchange process (known as out-clearing) or afterwards (in-clearing), but not during the
exchange process itself.

Until the mid 1990s, keying the cheque value in magnetic ink took place at the banks’
encoding stations, supplementing the codeline details. The introduction of image
technology was set to reduce this manual intervention, by capturing the information
directly from the amount box on the cheque and placing it into databases.

However, this new image technology was expensive. As volumes were falling and attention
was turning to the development of systems for automated payments, the clearing banks
wanted to be able to outsource their processing, either to specialist cheque processing
organisations or to another
member. So, in 1994, the
C&CCC amended the
clearing rules to enable
members to do exactly this.
The rules also allow them to
use the same outsourcing
company, which a number
Cheque processing at iPSL (left) and EDS (right) of them do.
Courtesy of iPSL and EDS

The economies of scale offered by outsourcing has meant that members can reduce their
processing costs whilst benefitting from a more efficient system and the latest technological
innovations.

Cheque Printer Accreditation Scheme (CPAS)

CPAS was set up in 1995 with the aim of tackling fraud involving company cheques. The
scheme requires that all cheques for use in the clearing process in Great Britain are
produced by C&CCC accredited printers. It means there is much greater quality control in
the paper, ink, and security features used in cheque production and it has helped reduce
some types of cheque fraud, namely fraudulent alteration and counterfeit.

CPAS members are also formally

accredited to print bank giro credits
(BGCs). Businesses do not have to
be a CPAS member to print BGCs -
a compulsory scheme was thought
to be impractical due to the
number of firms that print BGCs.
However, the voluntary scheme has
led to improvements in the quality
of BGCs and reduced processing
errors.

CPAS member certificate of accreditation

Cheque clearing since 1985

8
The IBDE network

In the early 90s banks were keen to reduce their reliance on the physical cheque for
information processing and also move away from other manual paper processes, thus
saving on costs. They had the ability to create data files from machine-read codelines for
use in members’ out-clearing departments, and realised that if the collecting banks could
send this information across a network to the paying banks, the paying banks could use
this cheque data for their in-clearing process. The result would be that the paying banks
would not have to recreate the same data files for their own use. All that was needed was
a common application standard for the cheque data files and a network standard for the
transmission of the data files.

The passing of the Deregulation, Bills of Exchange Order 1996, enabled banks to exchange
cheque data only and not paper at all (known as collecting bank truncation). The IBDE
(Inter-Bank Data Exchange) network was implemented the same year, following a two-year
phased implementation project. The legislation and the network were enablers for
collecting bank truncation but this system has never been implemented, even though it
was the C&CCC’s long-term vision for a number of years. One of the reasons for this is
because the physical cheque still has to be exchanged as there is no reliable way of
detecting some types of fraud other than by examining the paper, which only the paying
bank can do. Another reason was the high cost of implementation, which became
increasingly unattractive in a declining market.

The IBDE network was the first network for the exchange of bulk clearing data between the
major high street banks and building societies. The network enables member banks to
transmit digital files of cheque data between each other across a secure system to which
only they have access; all data has been encrypted as of 2009.

The cheque clearing process is more efficient as a result of IBDE. The immediate benefit
was that collecting banks no longer had to get staff manually to encode the amounts of
the cheque for the paying bank as the reader/sorter machines, with new image
technology, read both the codeline and the amount of the cheque automatically as the
digital files were created. Over time, banks (or more likely their outsourced processors)
have been able to streamline their in-clearing processes with considerable staff savings
and most are now able to use the information from the data files to debit their customers’
accounts.

Example of the cheque codeline

Cheque clearing since 1985

8
Establishment of the Company Office

The Company Office was set up in April 1996 as a separate unit dedicated to the work of
the C&CCC. The office is the hub for operational oversight, project management, audit
control, and change control management. It monitors ‘live incidents’ through to resolution
and calculates the daily settlement amounts. The office is also responsible for all
stakeholder management and communication and relationships with the Payments
Council, the Bank of England and other regulators.

Settlement used to take place daily at a central location in London where Bank of England
and members’ representatives would agree their settlement totals. However, many banks
wanted to relocate their clearing operation outside of London, which would make this
approach impractical if the agreed timescales for exchange and settlement were to
continue. In 1997 it was agreed that a settlement facility would be established and
managed by the Company Office and this is where the daily settlement amounts are
calculated.

The old settlement office in Post Office Court, Lombard Street, London

Merger with the Scottish clearing

Cheques paid in to banks in Scotland are exchanged in Scotland and historically the
exchange was managed by the Committee of Scottish Clearing Bankers. However, to
enable the Scottish banks to capitalise on the benefits of the IBDE network, the Committee
of Scottish Clearing Bankers agreed that from December 1996 responsibility for the
management of the Scottish clearing should be passed to the C&CCC. Another benefit of
the merger was a reduction by one day in the amount of time it took to clear “cross border”
cheques between Scotland on the one hand and England and Wales on the other.
The Royal Bank of Scotland and the Bank of Scotland were already members of the
C&CCC as they had branches in England but Clydesdale Bank, whose branches were all
within Scotland, were required to join the C&CCC, which they did in 1998.

In 1998 membership of the clearings comprised Abbey National, Bank of Scotland, Barclays
Bank, Clydesdale Bank, the Co-operative Bank, National Girobank, Lloyds Bank, Midland

Cheque clearing since 1985

8
Bank, National Westminster Bank, Nationwide Building Society, Royal Bank of Scotland, TSB
and the Bank of England. There were never to be so many members again. The C&CCC
was responsible for managing the exchange of paper in both London and Edinburgh and,
in 1998, the IBDE network was extended to Scotland.

The Scottish
Exchange Centre
in Edinburgh (left)
and bank sorting
bays in the
Exchange Centre
(right)

Non-standard paper clearing

Automated debit clearing by the IBDE network only works if the full codeline is present on
the cheque. Paper items where a codeline is not present are exchanged as ‘non-standard
paper’ and require significant manual effort to process. The only items which consistently
fail to meet the codeline requirements laid down in C&CCC Standard 3 are cheques issued
abroad, but payable in London. The C&CCC has no control over the quality or issue of
such paper in the way that it does over domestic cheque printing. In 1997 it was agreed
that these cheques should be processed in a separate low-volume clearing, called the
non-standard paper clearing - so as not to hamper or slow down the main clearing process
via IBDE, whilst still affording a practical bulk processing method.

Euro cheque clearing

Although the UK did not adopt the euro as its national currency when other European
countries did in 1999, many banks began offering euro denominated accounts with
chequebooks, principally to business customers. The cheques can be used to pay for
certain goods and services in the UK. The same year, the C&CCC set up the euro cheque
clearing system to process euro denominated cheques separately from sterling cheques in
Great Britain.

A euro cheque

Cheque clearing since 1985

8
Independence from APACS

The governance structure established as a result of the Child Report remained in place
largely unchanged for 15 years until the Cruickshank Report, ‘Competition in UK Banking’,
was published in March 2000. The report included a number of criticisms about the UK
money transmission industry, many of which were re-iterated in HM Treasury's subsequent
consultation document in the following year. Cruickshank concluded from his review of the
markets and network features that UK payment systems were failing in terms of delivering
price transparency, good governance, non-discriminatory access and efficient wholesale
pricing. The Cruickshank Report and the public consultation by HM Treasury both
recommended the establishment of a payment systems’ regulator.

In response to the report and the public consultation, APACS reviewed the link between
membership of APACS and ownership of the principal clearing systems. It was decided that
it should no longer be a requirement that members of the clearing companies should be
members of APACS, that the clearing companies should be in complete control of
admission to their clearings and that their eligibility criteria should be published.

So, in September 2002, the C&CCC became fully

independent of APACS, taking control of its
admissions process and publishing its eligibility criteria.
This led in time to the creation of a full brand identity,
the launch of www.chequeandcredit.co.uk in 2007
and greater engagement with stakeholders than ever
before.

Moving the London exchange centre to Milton Keynes

The Lombard Street Exchange Centre (the old Bankers’ Clearing

House) had been built prior to the advent of motorised vehicles so,
due to size restrictions, was only really accessible by special electric
vans that the banks had commissioned in the 1960s. When the banks
started to move their processing centres out of London, an exchange
centre was sought that could take deliveries from larger, fuel driven
vans (though the final trip by an electric van was made on 3 February
1995).

The Lombard Street Exchange Centre closed in 1994. From 1994 until
2003, English and Welsh items were exchanged at the premises of the
National Westminster Bank in Goodman’s Fields in the East End of
London.

In 2003 the London exchange centre was moved again, as a depot

that could take lorries heavier than three tons was needed. So, for Top: Lombard Street
the first time in its history and after more than 230 years, the London Exchange
exchange centre moved permanently outside London, to Milton
Keynes. Those members whose processing centres were now based Bottom: Tilbrook
Exchange,
in the Midlands avoided the need for the time-consuming journey by Milton Keynes
road to London. The exchange was re-named the English Exchange.

Cheque clearing since 1985

8
Settlement agreements and liquidity funding arrangement

The cheque and credit clearing systems are deferred multilateral net settlement systems.
This means there is a significant delay between the exchange of the cheques and credits
for payment and the actual settlement of those payments, which takes place on the day
after exchange. In such a system, if one of the members is unable to settle, the
consequences for the other members are potentially complex and create unexpected
credit or liquidity risks.

Between 2003 and 2005 the C&CCC created a legal framework, including liquidity funding
and collateralisation arrangements, that would enable settlement to complete in a variety
of bank financial failure scenarios. The aim is to ensure that the clearing systems continue
to operate with just the surviving banks if a bank were to collapse.

2-4-6 changes to UK cheque clearing timescales

In an electronic age, people have always asked why it still takes three days to clear a
cheque. The fact is, cheques still have to be returned physically to the bank on which they
are drawn to be examined for fraud. In addition, many businesses and consumers actually
take advantage of the cash flow benefits of the three-day cycle. These and other issues
were addressed by the Cheques Working Group, which was set up in October 2005 by the
OFT-led Payment Systems Task Force (which has since been wound up). The aim of the
group was to consider what improvements, if any, were needed to the cheque and credit
clearing systems across the UK. The recommendations of the working group were
published in the Cheques Working Group Report in November 2006.

For the report, the Cheques Working Group conducted research to

determine consumer and small business use of, and attitudes towards,
cheques. The main findings were that customers did not understand
the cheque clearing cycle and there was a demand for greater
transparency and certainty of payment. There was, however, no
business case for speeding up the cycle. The conclusions drawn from
the research resulted in recommendations for the settlement members
of both the C&CCC and the Belfast Bankers Clearing Company to
make changes to the clearing cycle by the end of November 2007,
and for all subscribers to The Banking Code to adopt these changes
when the new Code came into force in 2008.

The changes, implemented at the end of

November 2007, are known as the 2-4-6 and 2-6-6
cheque clearing timescales. The changes have
increased clarity and provided certainty for all
elements of the cheque clearing process for
customers paying in cheques to a UK current or
basic bank account (2-4-6), or UK savings account
(2-6-6).

The changes mean that customers start earning

interest on money paid into their current, basic or
savings accounts no later than two days after
paying in a cheque. After no later than four days
the money becomes available for withdrawal (six
days for savings accounts). The 2-4-6 cheque checker tool

Cheque clearing since 1985

8
The changes also mean that for the first time customers can be sure that, at the end of six
working days after paying in a cheque, the money is theirs. The beneficiary customer is
protected from loss if the cheque subsequently bounces, and the money cannot be
reclaimed without their consent, unless they are a knowing party to fraud.

However, these are only the maximum timescales – individual banks may and do compete
on when they pay interest or allow funds from paid-in cheques to be withdrawn by offering
these earlier than two and four days respectively.

Unpaids programme

To achieve the 2-4-6 timescales, the system for processing unpaid cheques had to be
streamlined so that the pay/no pay decision is always made on the day following
exchange. Instead of relying on the postal system, the banks use a dedicated courier
service so that notification of an unpaid is always received by the collecting bank on the
day after the pay/no pay decision is made.

TNT - The dedicated courier. Far right - a business innovation award won by C&CCC and TNT
Courtesy TNT (UK) Ltd

The courier service is provided by a third party supplier to settlement banks in Britain and
Northern Ireland, and is managed by the C&CCC. This was the first time that the C&CCC
had worked with the Belfast Bankers Clearing Company to implement a new service for
banks across the UK and it helped ensure that the clearing banks could deliver the new
clearing timescales.

The Payments Council and the National Payments Plan

The Payments Council was established in March 2007.

Its role is to set the strategy for payments in the UK and
to ensure that services provided by the UK payment
systems, such as the cheque clearing system, meet
the needs of users, payment service providers and the
wider economy. It is a membership organisation
funded by its members. It has a Board of 16 directors and, to ensure that the needs of all
users of payment systems are met, four of the Board’s directors and its chairman are
independent. For more information visit www.paymentscouncil.org.uk.

The Payments Council is responsible for delivering innovation, ensuring that payment
systems are open and accountable, and maintaining the integrity of the payment systems.
The Payments Council works closely with a number of contracted payments schemes for
the benefit of the UK payments industry. These include the C&CCC, together with Bacs
Payment Schemes Limited, CHAPS Clearing Company Limited, LINK ATM Scheme and the
Belfast Bankers Clearing Company.

Cheque clearing since 1985

8
 The Payments Council’s first task was to develop the National
Payments Plan after an extensive public consultation process.
Launched on 14 May 2008, the Plan sets out a 10-year vision
for UK payments together with the practical steps needed to
put the vision into practice. The vision includes the potential
for closing the cheque clearing.

Up-to-date information on developments on the National

Payments Plan can be found at www.paymentscouncil.org.uk

What next in cheque clearing?

Cheque use peaked in 1990 when 11 million cheques were written each day. However, in
2009, the year that the cheque celebrated its 350th anniversary, the Payments Council
announced plans to consider setting an agreed end date for cheque clearing, given that
cheque payments are in a state of
permanent decline.

Two decades ago the prospect of

personal and business customers
being able to make near
immediate payments online and
via the telephone would have
been unimaginable.

However, since the Faster Payments

Service was launched in May 2008,
its use has been growing all the
time. 180 million Faster Payments
were made in its first year (to a
value of £70 billion), and more
than half of regular internet users
are already using internet banking
to manage their finances.

2009 saw the C&CCC celebrating the 350th anniversary of

the cheque but cheques will not be around in another 350
years. However, whilst the cheque clearing remains open,
the C&CCC continues to work towards improving
efficiency, maintaining the operational integrity of the
clearings and taking advantage of technological
improvements where possible.

Cheque clearing since 1985

8
The
Cheque
and Credit
Clearing Company
The Cheque and Credit Clearing Company is a non-profit making, membership-based
industry body, which has managed the cheque clearing system in England and Wales
since 1985, and in all of Great Britain since 1996 when it took over responsibility for
managing the Scottish cheque clearing as well.

Angela Thomas (centre) and her Cheque and Credit

Clearing Company team

As well as clearing cheques, the system processes the following forms of payment:

 Bankers’ drafts
 Building society cheques
 Postal orders
 Warrants
 Government payable orders
 Travellers’ Cheques

The C&CCC also manages the systems for the clearing of paper bank giro credits (the
credit clearing) and euro cheques (the euro clearing).

The Cheque and Credit Clearing Company

9
The role of the C&CCC is to:

 Provide and run, through third party suppliers, the exchange centres in England
and Scotland where the members exchange their cheques and paper credits.
(The clearing of cheque and credit payments in Northern Ireland is managed by
the Belfast Bankers Clearing Company.)

 Provide, through third party suppliers, the Inter-Bank Data Exchange (IBDE) network
across which the banks transmit electronic details about cheques.

 Calculate the net amounts members must settle with each other based on the
value of the cheques and credits exchanged, and advise the amounts to the
settlement service provider for settlement.

Example of a
postal order

Example of a
Premium Bond
prize payment
warrant

 Determine the rules required to maintain the integrity of the clearing systems to
ensure that the central clearing process happens on time, reliably and to quality
standards.

 Ensure that participating members comply with the rules.

 Provide thought leadership in non-competitive matters relating to cheques and

cheque clearing.

 Manage the Cheque Printer Accreditation Scheme which was introduced in 1995
with the aim of tackling fraud involving company cheques.

The Cheque and Credit Clearing Company

9
Membership of the clearings

Banks and building societies that are C&CCC members are individually responsible for
processing cheques drawn on or credited to accounts of their customers.

There are certain eligibility criteria to join the C&CCC and these criteria must be objective,
fair and open. The criteria are published on the C&CCC’s website
(www.chequeandcredit.co.uk) together with a list of current members.

Members do not have to participate in all three clearing systems but, in practice, they all
do with the exception of the Bank of England, which is not a member of the euro cheque
clearing system.

Application for membership

Any bank or building society wishing to become a member needs to apply in writing to the
Managing Director. An organisation may apply to be admitted to participate in one or
more of the cheque clearing system, the credit clearing system and the euro cheque
clearing system. The application must set out sufficient detail for the C&CCC to satisfy itself
of the prospective member’s compliance with, and its ability to continue to comply with,
the eligibility criteria. There is an annual charge for being a member of the C&CCC and
there is an initial joining charge.

Further details on how to become a member and details about the various charges can be
obtained by contacting the company at info@chequeandcredit.co.uk.

Agency banks or indirect clearers

Around 400 banks and building societies provide cheque clearing services for their
customers, obtaining indirect access to the cheque and credit clearing mechanism by
means of agency arrangements with one of the settlement members.

These arrangements are separate from the C&CCC and are commercial agreements
between the bank or building society concerned and the C&CCC member. Once the
arrangement is in place the entity becomes an ‘indirect clearer’.

The Cheque and Credit Clearing Company

9
The cheques
market
Since the volume of cheques written peaked at 4 billion in 1990, the cheques market has
been in decline. In 2008, 1.4 billion cheques were used for payment and to acquire cash.
This decrease is mainly due to the increasing use of debit cards and automated payment
methods such as the Direct Debit, and more recently, the Faster Payments Service. The
annual rate of decline of the volume
of cheques being used is now in double
figures. 1990 2008

The strongest influence on the recent rapid

decline has been the move by the major
supermarkets and other retailers not to
accept personal cheques any longer. The
other area seeing a strong move away
from cheques is personal bill payment. 1990 2008
Some telecoms firms, for example, no Credit card 0.75bn 2.05bn

longer accept cheques as payment while Debit card 1.22bn 8.32bn

others charge extra to customers that pay Automated payments 1.74bn 6.01bn
by cheque. Energy firms have adopted Cheques 3.98bn 1.40bn
similar changes with many discounting for
customers who commit to paying by Direct Debit. As a result only a small and declining
minority of personal bill payments are now made by cheque.

Business-to-business cheque use is also in decline, although the volume of cheques used
for payments by businesses to individuals has seen little change in recent years. Many large
organisations remain heavy users of cheques for purposes such as refunds, dividends and
insurance settlements. Overall, business use of cheques has been falling more slowly than
consumer use, so accounts for an increasing share of all cheque transactions.

However, cheques remain a uniquely flexible payment method that can be used for almost
any type of payment or transfer, whether face-to-face or remote. There are some market
sectors where cheques remain heavily used, often those where electronic alternatives are not
always available or do not fully meet the needs of payers or payees. Householders often use
cheques to pay tradesmen for example, while small and medium enterprises still write and
receive more cheques than other business sectors.

The cheques market

10
Facts and figures

 Between 1985 (the year the C&CCC was established) and 2008, the company
cleared 44.8 billion cheques to a value of £26,850 billion.

 One day’s volume of cheques cleared in 2008 would cover the Wembley football
pitch 11 times over.

 This compares with 27 Wembley football pitches in 1990, the peak year for cheque
volumes.

 In 2008, 3.8 million business and personal cheques were issued each day, ranging
in value from 1p to more than £10 million.

 The average value of each personal cheque written in 2008 was £267.

Other Retailers
9% 14%
Travel and
entertainment
Regular bills 9%
21%
Credit card
bills
12%

Person-to-
Person-to- Personal cheque payments 2008
person
business
15% Total volumes: 663 million payments
20%

 Only one in twelve regular commitments is paid by cheque, compared with one in
five as recently as 2000.

 Only 3.9% of retail spending by value is still by cheque, compared with over 60% by
debit or credit card.

 Business cheque use peaked in 1997 at 1.2 billion transactions and had fallen to
692 million by 2008.

 Credit clearing volumes peaked in 1998 when 178 million bank giro credits were
cleared. In 2008, 86 million were cleared, less than half the volume in 1998.

 92% of the items going through the credit clearing are for bill payments.

 Euro clearing volumes peaked in 2003 when 729,000 euro cheques were cleared.
By 2008, only five years later, this volume had dropped by nearly 40% to 445,000.

The cheques market

10
The central
infrastructure
The C&CCC provides a centrally managed, distributed payment system infrastructure
through third party suppliers. The company’s primary concern is to ensure that the
infrastructure is secure, reliable and robust, and there are several layers of contingency
within the central infrastructure to ensure that exchange and settlement take place on
every clearing day.

Exchange centres

C&CCC contracts with third party service providers for the provision of a daily cheque and
credit paper clearing exchange service for normal banking business days at secure
premises. There are two exchange centres, one in central England and one in Scotland.
The exchange centres are used by all three clearing systems: cheque clearing, credit
clearing and euro clearing.

Exchange centre,
Edinburgh

Exchange centre,
Milton Keynes

The central infrastructure

11
Data transfer network

The C&CCC’s central network infrastructure is called the Inter-Bank Data (IBDE) Exchange
network. It allows the transfer of digital data on cheques and is provided by a telecoms
supplier. It is a secure network to which only members of the cheque clearing system have
access. Continuity of service is of paramount importance and, to ensure this, the network
service provider monitors the performance of the network to each member’s end-point at
intervals of a few minutes throughout the whole day. There is also a proactive fault
management service.

All cheque data passing across the IBDE network or between members using the same
outsourced processor must be encrypted. It must also be signed with a digital signature for
authentication purposes so that the receiving bank can verify that the data has not been
tampered with as it passed across the network. The encryption and authentication security
sub-system is provided by a third party software supplier and is managed by the C&CCC.

The IBDE cheque data transfer network

The central infrastructure

11
Settlement System

Members input their bilateral pay and charge figures onto a secure browser-based
application, which is hosted by a third-party supplier, using internet connectivity.
Reconciliation of the figures, to eliminate any discrepancies between the members’
calculations, is automated and after all the figures are agreed, the software calculates
the multilateral net figures that must be paid to or received from each member bank.

The information is then transmitted to the settlement service provider (SSP) for final
settlement. The SSP is the Bank of England for the sterling clearings and SWIFT messaging is
used to transmit the settlement figures directly into RTGS (Real Time Gross Settlement
System). A European central bank is the SSP for the euro clearings, where the settlement
service is less automated, the settlement information being sent by fax from the Company
Office.

The SSP pre-notifies the settlement obligation to the treasury department of each member
bank so that they can make sure sufficient funds are available for settlement purposes.

Unpaids courier service

The C&CCC provides, through a third party supplier, a dedicated courier service for the
collection and delivery of unpaid cheques to members of the C&CCC and to members of
the Belfast Bankers Clearing Company. Items to be returned are placed in uniquely
numbered plastic bags, called polylopes. Bar code scanning of the polylopes takes place
at each of the 48 collection and 21 delivery points around the UK and at the central hub.
This enables the banks to track the progress of the unpaid cheques, rather like a recorded
letter or parcel, as they are couriered, via the central hub, to their intended destination the
next day.

The implementation of this service in November 2007 has meant that banks across the UK
can be sure that they get back unpaid cheques on a timely basis so that they can meet
the 2-4-6 cheque clearing timescales. Previously banks relied on the delivery of unpaid
cheques by post.

Scanning the polylopes at the central hub

Courtesy of TNT (UK) Ltd

The central infrastructure

11
Members’
cheque processing
The bulk of the processing of cheques and credits is undertaken either prior to the
exchange process (known as out-clearing) or afterwards (in-clearing), but not during the
exchange process itself.

Since 1994, when the C&CCC amended its clearing rules, more and more members have
outsourced their processing, either to specialist cheque processing organisations or to
another member. The economies of scale offered by outsourcing has meant that members
can reduce their processing costs and benefit from a more efficient system and the latest
innovations using image technology.

One of the C&CCC’s priorities is making sure the clearing system is robust, reliable and
secure. Its work on payments integrity examines any factors that might threaten the
system’s reliability and the company has developed checks and controls that are designed
to eliminate risk and prevent disruptions.

Outsourcing the
processing of
cheques at iPSL
(left and centre)
and EDS (right)
Courtesy of iPSL and EDS

The C&CCC does not have a direct relationship with any outsourcers used by its members,
so members have responsibility for managing the outsourcing firms they use and must
ensure that these firms comply with the C&CCC’s checks and controls.

The only function outsourcers cannot do is to put up the funds for settlement. Settlement is
a core banking function and only members are able to settle through the settlement
service providers.

As with the central infrastructure, there are several layers of contingency within the cheque
processing environment to ensure that exchange and settlement take place on every
clearing day.

Members’ cheque processing

12
Cheque printer
accreditation
scheme
The Cheque Printer Accreditation Scheme (CPAS) was introduced in 1995 with the aim of
tackling fraud involving company cheques. The scheme requires that all cheques for use in
the clearing process in Great Britain are produced by accredited printers who have
adopted stringent security standards. These measures have increased the security of
cheque production by enabling these standards to be introduced more swiftly and
economically across the industry. Members of CPAS are also accredited to print bank giro
credits.
Members of CPAS receive a regular
newsletter, ChequeMate, which keeps
them up-to-date with the latest facts and
figures, including fraud trends and
technology developments. The C&CCC
also produces a series of best practice
guidelines for cheque printers and business
users of cheques, which contain advice to
help protect cheques from fraud and
ensure the security and print quality of
cheques. The newsletters and the
guidelines can be downloaded from the
cheque printers area of the C&CCC
website.

CPAS members are also invited to attend

the C&CCC’s seminars, which keep all
stakeholders in touch with what is going on
in the world of cheques and cheque
clearing.

Example of the CPAS newsletter, ChequeMate

Cheque printer accreditation scheme

13
Membership of CPAS

Any security printing business may apply to become accredited under the scheme,
provided it meets the membership criteria which are as follows:

 Certification to ISO27001 IEC27001-2005 (ISO27001). This is the only auditable

international standard which defines the requirements for an Information Security
Management System (ISMS). The standard is designed to ensure the selection of
adequate and proportionate security controls. This certificate must be obtained
prior to application to CPAS and the audit must be carried out by one of the
certification bodies listed in Standard 55.

Example of the Standard 55 Accreditation Certificate

 Certification to C&CCC Standard 55. Used in conjunction with ISO 27001, this
standard addresses the specific additional information security requirements of
CPAS. Standard 55 can be purchased from the cheque printers area of the
C&CCC website. The certification process for Standard 55 involves the printer’s
premises and production methods being inspected by one of the certification
bodies listed in the standard. During the inspection the printer must demonstrate
at least one of the cheque printing processes listed in the CPAS rules.

Once accredited, the printer must enter into a legal agreement with the C&CCC and
abide by the rules of the scheme.

Application for membership

Printing firms that want to apply for membership of CPAS can obtain an application form by
emailing cpashelpdesk@chequeandcredit.co.uk. The application form contains details of
the membership fee.

More information is available at www.chequeandcredit.co.uk/chequeprinters or by

emailing cpashelpdesk@chequeandcredit.co.uk

Cheque printer accreditation scheme

13
Bank giro
credits and the
credit clearing
process
Bank Giro Credits

Bank giro credits (BGCs) are used by customers to pay cash or cheques into a bank
account. They are commonly found in the form of tear-off strips at the bottom of utility,
telephone and other regular bills. A bank giro credit is basically a paper slip addressed to a
bank branch instructing it to credit a specified sum of money to a named account at that
branch. It bears the money mark logo next to the words “bank giro credit.”

An example of a bank giro credit and

the Money Mark found on the APACS
logo

A bank giro credit is not a payment instrument, i.e. it cannot be used on its own to make a
payment, and must be accompanied by cash and/or cheque - so the use of bank giro
credits tends to follow any trends in the use of cheques and cash as a method of payment.

You can use a bank giro credit to pay a bill in two ways:

 by post with a cheque;

 by paying the amount into a branch of the paying customer’s own bank with cash
or cheque.

Bank giro credits and the credit clearing process

14
Bank giro credits can also be found in the back of chequebooks and are used by
customers to pay cash or cheques into their own bank accounts. In addition, they are used
by banks to collect donations for charity appeals such as Children in Need.

A joint giro credit is one that has

been issued by a biller and it
can be used to pay a bill either
at a bank, in which case it will
be cleared through the inter-
bank credit clearing, or at a
branch of the Post Office. The
joint giro credit on the right is
addressed to the Alliance &
Leicester Commercial Bank and
has the words “TRANSCASH”
printed on it, as well as the words An example of a joint giro credit
“bank giro credit” and the
money mark logo.

History of the credit clearing

The credit transfer scheme was introduced by the clearing banks in 1961 and meant that,
for the first time, it was possible for both customers and non-customers to make payments
to an account at any bank. This was almost a decade before automated payments were
introduced by the Bankers’ Automated Payments Service (now called Bacs) in 1969.

National Girobank had introduced an

internal credit clearing system, which
emulated the continental giro credit
system, and the Committee of London
Clearing Bankers implemented the credit
clearing to match that innovation. In the The Girobank logo
early days of credit clearing, the principle
credit clearing items were traders’ credits, dividend payments and mail order payments
from catalogue agents. Dividend payouts peaked at the end of each financial quarter
and extra staff were drafted in for adding machine listing duties in the credit clearing
departments.

Clearing volumes grew rapidly during the 1970s, as mail order catalogues grew in
popularity and agents would regularly pay in bank giro credits with cheques or cash as
they processed the catalogue orders. The BGCs were returned to the billers by the banks,
as they were needed for the account reconciliation process. These slips of paper also
became conveyors of non-payment information, such as change of address details.

A major drawback in the early years was the lack of uniform paper credit clearing vouchers
issued by the various banks. Each voucher was hand-written by the customer, which led to
significant numbers of errors. These errors threatened the accuracy of the data (amount
and account details) passing between the banks. It was much later that the format for
bank giro credits was agreed by the banks, leading to the development and adoption of
C&CCC standard 3.2. It took many years to rid the system entirely of handwritten vouchers
and it was not until 1998 that they were finally banned. Since then all bank giro credits
passing through the credit clearing must comply with design, layout and printing
requirements of C&CCC standard 3.2.

Bank giro credits and the credit clearing process

14
As well as managing the cheque clearing after its establishment in 1985, the C&CCC also
assumed responsibility for the credit clearing from this time.

Credit clearing volumes peaked in 1998 when the C&CCC cleared 178 million items.
Volumes started declining in the following year, as a result of banks banning hand-written
BGCs and no longer accepting
non-customer transactions, i.e.
those where the bank has no
relationship with either the
beneficiary of the bank giro credit
payment or the paying customer.

Over ninety per cent of the items

now going through the credit
clearing process are for bill
payments. Bank giro credits are
generally paid in at the payer’s
bank but, as more and more
consumers move from cheques
and cash to automated payments
A joint giro credit from the early 1980s
to settle their regular bills, we expect
the decline in credit clearing to
accelerate further. Since 2006 volumes have been declining at a rate of over 10 per cent
per year.

The BGC standard

The C&CCC requires that all bank giro credits passing through the credit clearing system
comply with the design, layout and printing requirements of C&CCC standard 3.2. CPAS
accredited cheque printers can also print bank giro credits, and a number of companies
who are members of the Bank Giro Credit Certification Scheme are certified to print the
vouchers. This has led to improvements in the quality of the vouchers and has reduced
processing errors. In practice, however, any company can print bank giro credits, provided
they comply with the requirements of C&CCC standard 3.2. As a result many companies
print them, which means that the quality of bank giro credits is much more difficult to
control.

The credit clearing process

Bank giro credits are cleared and settled in much the same way as cheques, over a
three-day period, and they use the same processing equipment and the same exchange
centres. However, there is less automation - paper is exchanged but digital files are not -
and the volumes are about one-tenth that of the cheque clearing volumes. Banks settle for
the credit clearing through the Bank of England, as they do for the cheque clearing.

Bank giro credits and the credit clearing process

14
Euro cheques
and the euro
cheque clearing
Euro cheques

Euro-denominated cheques are issued by UK banks and can be used to pay for certain
goods and services in the UK. The British euro cheque clearing system was established in
1999 to coincide with the launch of the euro.

Banks which offer customers euro-denominated cheque services generally do so as part of

a UK/euro bank account. These cheques can only be used in the UK and when they are
paid into euro bank accounts in Great Britain they are processed through the euro cheque
clearing, which is managed by the C&CCC.

Euro cheques are used mostly by businesses and the volumes seen are very small. Annual
clearing volumes for euro cheques peaked in 2003 at 729,000 and, since then, volumes
have declined every year. They now total less than half a million each year.

A euro cheque

Euro cheques and the euro cheque clearing

15
The euro cheque clearing process

The beneficiary pays the cheque into their bank account at their own bank which then
passes it through the euro cheque clearing system to the drawer’s bank who, in turn, debits
the funds from the drawer’s account. The 2-4-6 clearing timescales do not apply to euro
cheques.

All euro cheques used in the British euro clearing must comply with the design, layout and
print requirements of C&CCC standard 3 and must be printed by a CPAS accredited
cheque printer.

Euro cheques are cleared in much the same way as sterling cheques, over a three-day
period and they use the same processing equipment and the same exchange centres.
However, as with bank giro credits, there is less automation – paper is exchanged, but
digital files are not - and the volumes are very small, only totalling a few thousand per day.
The settlement service provider for the euro clearings is a European central bank.

Euro cheques and the euro cheque clearing

15
The Cheque and
Credit Clearing
Company website
The C&CCC values the relationship it has with the various stakeholders involved in the
cheque clearing process, which include: cheque users; processors of cheques; hardware
and software suppliers; infrastructure suppliers; cheque printers; banks that provide cheque
clearing services; and regulators of the cheque clearing system.

The C&CCC’s website, www.chequeandcredit.co.uk, is home to a comprehensive range of

information and data about cheques and cheque clearing, including: digital guides about
the cheque clearing timescales and how to use cheques safely; various newsletters,
C&CCC membership criteria; a section for cheque printers and answers to some of the
questions most frequently asked about cheques and cheque clearing.

You will also find key

findings from our annual
research programme to
help understand why
consumers and
businesses use cheques
and whether businesses
try to influence how their
customers pay them. The
research also helps us to
assess the effect of our
education initiatives,
enabling us to find out
how well consumers and
businesses understand
the cheque clearing
timescales.

The website homepage

The Cheque and Credit Clearing Company website

16
The cheque
timeline
1659 Date of the earliest known surviving English cheque

1659 - The earliest

known surviving
cheque in the UK
Reproduced with the kind
permission of The Royal Bank
of Scotland Group © 2009

1694 First meeting of the Bank of England

1704 The first Act defining the status of bills of exchange and promissory notes in law
1705 Earliest known surviving cheque drawn on a country banker; Thomas Smith of
Nottingham (a past constituent of National Westminster Bank, which is now part
of The Royal Bank of Scotland Group)
1706 Act providing for Bills of Exchange to have two counterfoils 1717 Bank of
England introduce printed cheques
1759 Earliest known surviving cheque on a printed form drawn on Vere Glyn &
Hallifax

1759 - The earliest known sur-

viving cheque printed with the
name of the issuing bank
Bank of England Collection

1760s Bank of England cheque forms made compulsory for its customers
1768 Boldero Carter Barnston & Snaith issue coloured cheques
1770 Daily cheque clearings formalised among private London bankers
1773 Cheque exchange established in London

The cheque timeline

17
1782 First act to impose a tax on all cheques made out “to order”
1790 Earliest known printed cheque not drawn on London, issued by Cobb & Co of
Margate (after 1891 part of Lloyds)
1805 Clearing of items drawn within London moved to premises in Lombard Street

An example of a cheque
dated 1810 drawn on a
country bank
Courtesy of Lloyds Banking Group
Archives

1811 Earliest known personalised cheque drawn by John Thom on the Commercial
Bank of Scotland (a past constituent bank of The Royal Bank of Scotland
Group)
1821 Committee of bankers formed to regulate clearings in London
1830 Bank of England introduce books of 50, 100 or 200 forms and counterparts,
bound or stitched
1833 First clearing house built in Lombard Street, London
1854 Joint-stock banks admitted to the clearing
1854 Settlement in cash replaced by settlement across accounts held at the Bank of
England using cheques drawn on the Bank
1858 Country clearing established; 1d stamp duty applicable to all cheques
1864 Bank of England admitted to the clearing
1865 Edinburgh clearing house opened
1882 Bills of Exchange Act
1907 Metropolitan clearing established
1918 Stamp duty on cheques doubled from 1d to 2d
1939 Clearing transferred to Stoke-on-Trent due to World War II
1946 Clearing transferred back to Lombard Street
1957 Cheques Act published
1959 E13B standard for MICR agreed and patented in the USA
1960 First reader/sorter demonstrated to Committee of London Clearing Bankers
1961 Credit clearing established
1962 First MICR reader/sorter system in Europe opened at the Westminster Bank,
Lothbury Head Office
1965 First cheque card issued by National Provincial Bank allowing cheques to be
cashed at its branches (and those of its constituent banks up to the value of
£20 per day)
1966 First credit card, Barclaycard, introduced in the UK
1966 First cheque cards issued guaranteeing encashment of cheques and payment
by cheque for goods and services up to a value of £30 per cheque
1969 UK Domestic Cheque Guarantee Card Scheme introduced

The cheque timeline

17
1969/70 Mergers and acquisitions reduced the number of clearing banks to six: Barclays
Bank, Coutts & Co, Lloyds Bank, Midland Bank, National Westminster Bank and
Williams & Glyn’s
1971 Stamp duty on cheques abolished
1971 Decimalisation
1973 Clearing processes exempted from three-day week restrictions
1977 £50 cheque guarantee card limit introduced
1984 Child Report - Review of Organisation, Membership & Control of Payment
Clearing systems - published
1984 Liverpool Local Exchange discontinued
1985 APACS and the Cheque & Credit Clearing Company
Ltd established
1985 General clearing renamed the cheque clearing
1985 Royal Bank of Scotland fully merged with Williams & Glyn’s and became a
member of the clearing
1986 Bank of Scotland joined the clearing
1987 First debit card, Connect, introduced in the UK by Barclays Bank
1988 Abbey National joined the clearing
1989 £100 and £250 cheque guarantee card limits introduced
1989 First telephone-only bank, First Direct launched
1990 Peak year for cheque volumes
1990 William Shakespeare image (logo/hologram) appear on all cheque
guarantee cards
1991 First edition of The Banking Code
1991 Nationwide Building Society joined the clearing
1992 Cheques Act and Account Payee crossing regulations
1992 The Banking Code took effect
1994 London Exchange Centre moved from Lombard Street to Goodman’s Fields in
the East End of London
1995 Introduction of the Cheque Printer Accreditation Scheme (CPAS)
1995 Barclays Bank launched first banking website
1995 Town clearing closed
1995 Lloyds Bank introduced left-handed chequebooks

1995 - Lloyds Bank introduced left-handed chequebooks

1995 Lloyds Bank and TSB merged

1996 Deregulation (Bills of Exchange) Order to allow collecting bank truncation
(non-presentation of paper)

The cheque timeline

17
1996 Banks began to exchange data as well as paper – Inter-Bank Data Exchange
(IBDE)
1996 Scottish cheque clearing with Scottish Exchange came under the responsibility
of the C&CCC
1997 First internet banking service introduced by Nationwide Building Society
1998 IBDE extended to banks in Scotland
1999 Launch of euro and opening of the euro cheque clearing
1999 Midland Bank acquired by HSBC Bank
2000 Number of Direct Debits exceeded cheques for the first time
2000 Retirement of the last APACS Chief Inspector
2000 National Westminster Bank and The Royal Bank of Scotland merged
2001 Bank of Scotland and Halifax Bank merged to form HBOS
2002 C&CCC gained independence from APACS
2003 London Exchange moved from Goodman’s Fields to Milton Keynes – London
exchange renamed the English Exchange
2004 Abbey National acquired by Banco Santander
2005 Shell stopped accepting cheques – the first major retailer to do so
2006 Office of Fair Trading report requiring certainty of fate – responsibility for unpaid
cheques passed from British Bankers Association to the C&CCC
2007 Cheque volumes in double digit decline for the first time
2007 Unpaids courier service implemented
2007 2-4-6 changes introduced to cheque clearing timescales giving customers
certainty on cheque funds for the very first time
2007 C&CCC moved from Livingstone House to Triton Court, both in Finsbury Square,
London, EC2
2007 www.chequeandcredit.co.uk went live
2007 Payments Council established – a new body to set strategic direction for the UK
payments industry
2008 Most major retailers stopped accepting cheques
2008 Faster Payments Service introduced for online, phone and standing order
payments
2008 Payments Council published National Payments Plan suggesting active
management of the decline of the cheque is required with a possible closure of
the cheque clearing
2008 Alliance & Leicester acquired by Banco Santander
2009 Lloyds TSB Bank acquired HBOS
2009 All IBDE cheque data files encrypted
2009 New settlement sub-system using SWIFT messaging implemented

The cheque timeline

17
Sources
 A collector’s guide to British cheques, D Shaw 1986
 The Bank of England Museum
 Banks and Banking in England, R Gibson-Jarvie 1979
 The Bank of England I 1694-1797 by Sir John Clapham 1944
 The Banker, number 238, November 1945
 The Bankers’ Clearing House – What it is and what it does, PW Matthews 1921
 Bills of Exchange & Cheques made easy, JE Almond 1938
 The Chartered Institute of Taxation
 Cheques, their origin and development, CF Hannaford 1923
 Country Banks of England & Wales M Dawes, CN Ward-Perkins 2000
 E W Stubbs former Clearing House Chief Inspector
 EDS Clearing Services
 The Encyclopaedia Britannica
 F D Galbraith, former Company Manager at the C&CCC
 Guildhall Library catalogue
 Hansard Archives
 International Genealogical Index
 iPSL Ltd
 L W Shed, former Operations Manager at the C&CCC
 Lloyds Banking Group Archives
 The London Clearing Banks E Nevin, EW Davis 1970
 The Museum of London
 Payments Council’s UK Payment Statistics – current edition
 P Farley, Solchar Ltd
 P M Rowe, the last APACS Chief Inspector
 The Royal Bank of Scotland Group Archives
 The Royal Bank of Scotland Review 1987
 The Royal Mint
 Technology & Natwest (in-house publication)
 The Three Banks Review no 146 1985
 The Times newspaper archives
 TNT (UK) Limited
 The Trustees of the British Museum
 The Trustees of the National Museum of Scotland

And with thanks to all our colleagues from the member organisations, the company and
UK Payments who have suggested topics, commented on drafts, and provided pictures.

© 2009 Cheque and Credit Clearing Company

Sources

18